Seek blames Trump for Latin America writedown

By Jennifer Duke & John McDuling

6 August 2018 — 12:33pm

The man leading Seek's push into high-risk, high-reward emerging markets has defended its focus on growth, after the online recruitment giant was forced to write down its operations in Latin America citing political uncertainty caused by the Trump administration.

Seek shares sank $1.92, or 8.8 per cent to $20 on Monday after the company announced a $178 million write-down of its Brazil and Mexican businesses, and said its profits would be flat in fiscal 2019, disappointing investors.

Consensus expectations among analysts were for growth in profits of 20 per cent.

Seek CEO Andrew Bassat was not pleased to have to deliver write-down news, but thought the business was in good shape.Credit:Eddie Jim

"These are very large economies, both larger than Australia, and their populations are massive. They should, over the long term, grow at a much faster rate," Seek's chief executive for Asia Pacific and the Americas, Michael Ilczynski, told Fairfax Media.

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"Our strategy over the past 10,12 years has been to be invested in these emerging markets, in China, south east Asia and Latin America. It has has created a lot of value for shareholders, but it does come with risks. But we believe these are manageable risks, and risks worth taking."

Seek said it expects to report 2018 profits at the top of its previously issued guidance range - of about $230 million. Revenue would be up 24 per cent. It expects to generate revenue growth of between 16 per cent and 20 per cent in 2019, but profits will be flat.

Mr Ilczynski said economic confidence had taken a hit in Mexico due to concerns the North American Free Trade Agreement would be torn up by the Trump administration.

"The uncertainty regarding NAFTA is the treaty going to be renegotiated, the reason that flows into our business is just the uncertainty, it causes businesses to hold back on hiring," he said.

In Brazil, recent strikes and a looming presidential election (the leading candidate for which is currently in jail) had also had an impact on confidence, he said.

Seek CEO Andrew Bassat said on a call with analysts he was "not obviously pleased with the news we've had to announce" but did think "the business is in good shape".

Macquarie analysts estimated the company's operating expenses will increase by 24 per cent in fiscal 2019. Seek said over half of the increase in operating costs would be deployed into Zhaopin, the fast-growing Chinese career platform, which it majority owns.

"If you are a long term investor there is nothing to be worried about," said Hyperion portfolio manager Will Hartnell. Hyperion is Seek's second largest shareholder, with a stake of about 8 per cent.

"Their top line growth is really strong and they have got a great track record of expanding into new markets. They are one of the few Aussie companies that has that".

The company expects to invest $35 million to $45 million in "early stage ventures" in offshore emerging markets next year.

"Our experience in China and Southeast Asia has been really valuable for us," said Mr Ilczynski. "These investments aren't smooth. They take courage from the board, and courage from our investors."

Mr Ilczynski said the company had exited investments in India and Africa before and was constantly reviewing its investments. "We are committed to these markets but we are not stubborn," he said. "We will not persevere for no good reason. But we believe... these are great markets to be exposed to, there is great upside in them over the long term."